Value-Added Systems

OVERVIEW In a market setting, a business undertakes many operations to provide product (good or service) to its customers. Each of these operations receives an input (raw material, labour, throughput) and transforms it into an output. An operation is effective if it creates an output having more value than its input. The value added by each operation justifies its raison être in the business. Then an operation is efficient when its output is created with a low cost. Traditionally, in the analysis of a business strategy, one takes the view that the advantage of a firm results from many operations that a firm performs in designing, producing, marketing, delivering, and supporting its product. These operations are taken place in an interrelated environment including suppliers, competitors, distributors, and consumers. Each operation of the system should add a value in the process of transforming its input to output. Consequently, one should maximize the performance and minimize the cost of each of these operations so that the value of the good or service will exceed the cost of input. At the end, the agent (i.e. supplier, firm or distributor) will earn a margin when customer accepts and paid for that value. In the last two decades, it has been found that the optimisation of individual operations in the production system does not necessary create an overall advantage for the firm in the market. An efficient part of a production system does not necessary contribute effectively to the value of final product and create a competitive advantage for the company. The reason is the value added through operations is not always fully accepted and paid for by consumers. In fact the operationoriented view is ineffective to meet changing consumer needs in a changing market. Therefore the contemporary view is to look at the firm and its operations (activities) as a whole. One needs to identify and implement effective process for the company, which is a complete set of efficient operations creating value for a customer.